Trading competitions are games, nothing more

This week CNBC kicked off it’s Million Dollar Portfolio Challenge. They’ve put plugging the stock trading competition for quite a while now. Seems like they have a nice set of prizes available for those who do well. If you are taking part, best of luck to you.

Here’s the thing, though. Trading competitions, for the most part, provide absolutely no worthwhile information about an individual’s ability in the markets. They are usually too short in nature for any meaningful results to come out of them. I don’t know about you, but I would most certainly never consider handing my hard-earned money over to some guy whose track record consists of three months worth of performance data.

The other part of the equation is the risk factor involved. Taking part in a trading competition is about winning. It’s not about good money management, achieving consistent performance, or anything else that we would normally equate with trading success. It’s about who’s got the largest number at the end. Basically, either you win a prize or you get nothing (maybe you’re out your entry fee). There is no in between. Because of that, participants are basically encouraged to take enormous risk. Why not? There’s nothing to lose, after all, and tons to gain. It’s not like real trading at all, and should not be considered such.

Even if you were to take one of these trading challenges seriously in terms of good risk management, sticking to your plan, etc. you still end up with what is essentially demo trading. We all are well aware of the limitations of that. It’s not psychologically the same as real trading, even if the prices and execution are. Not having actual money at risk makes a major difference, as anyone who’s made the jump from paper to live trading will tell you.

Basically, what is comes down to is playing a game. A trading competition is just that. It’s sport of a sort – meant for entertainment and competition, but nothing beyond that. By all means, take part and have fun doing so. You may learn some stuff along the way. Just don’t let yourself believe it’s any more significant than that.

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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